Fannie Mae and Freddie Mac will be permitted to retain a combined $45 billion worth of earnings, the Federal Housing Finance Agency announced September 30, after holding only small capital cushions of $3 billion each for seven years. The move to alter the government's preferred stock purchase agreements is the first major one under FHFA Director Mark Calabria's tenure to wind down the conservatorship of the government-sponsored enterprises. "The enterprises are leveraged nearly 1,000-to-one, ensuring they would fail during an economic downturn— exposing taxpayers once again," said Calabria in a statement. "FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform." Fannie Mae and Freddie Mac will be allowed to retain more of their earnings for the first time since 2012, when the government required that the two companies surrender most of their profits in an effort to repay taxpayers for the bailout during the financial crisis. In the following months, FHFA will work with Treasury to limit the government's role in housing finance, increase marketplace competition and focus on affordable housing and sustainable homeownership, FHFA said in a release. "The status quo is not an option," said Calabria. "Now is the time to act."
Source: The American Banker